ADP data show the labor market is ‘getting better faster’: economist

Private-sector employers hired at a much faster rate last month than economists had expected, expanding payrolls by a robust 281,000 jobs, according to data released Wednesday. That figure blew past Wall Street’s forecast of 210,000, and was up 30% from a year earlier, Automatic Data Processing said.

Economists care about ADP’s data because it can provide clues about the U.S. Labor Department’s monthly snapshot of nonfarm employment, which will be released Thursday. However, some analysts dismiss ADP’s data because it sometimes substantially misses the government’s estimate.

There have, in fact, been some large gaps between the two estimates in recent months. In December, for example, ADP said private-sector payrolls gained 191,000 jobs, compared with the government’s estimate of 86,000. But other readings have been quite close (check out the chart), with ADP reporting a gain of 198,000 private-sector jobs in March, compared with the government’s estimate of 200,000.

Here are reactions from a few economists to ADP’s Wednesday morning report.

Neil Dutta, head of U.S. economics at Renaissance Macro Research:

“Even if we assume the ADP data is overstating the health of the labor market, the 12-month average is 200,000. That is more than enough to continue pushing down the unemployment rate over time because the growth in the labor force is weak. So, the labor market is getting better and getting better faster.”

Robert Brusca, chief economist at FAO Economics:

“Taken at face value the ADP [report] is very strong. However it is coming off an extended period of undershooting the nonfarm report.”

Jim O’Sullivan, chief U.S. economist at High Frequency Economics:

“The data suggest upside risk for the 215K consensus estimate for payrolls…but, of course, ADP is far from infallible…Whatever about the specific rise in payrolls tomorrow, this report adds to the evidence that the labor market has strengthened further this year, further undermining the signal from the Q1 GDP report.”

Steven Ricchiuto, chief economist at Mizuho Securities USA:

“Although this number has not been a good indicator of the payroll series, the growth bulls will be pleased and the whisper numbers on payroll will probably rise as the day moves forward. This will weigh on the long end of the Treasury curve.”

Millan Mulraine, deputy head, U.S. research and strategy, at TD Securities:

“The overall tone of this report was unambiguously positive and it suggests that the U.S. labor market may again be firing on all cylinders, and on an accounting basis points to payrolls growth closer to 300K. However, given the tendency of this report to miss the actual performance of the official employment indicator by wide margins, we see this out-sized gain in ADP as nothing more that a catch-up from the big under-performance over the last two months.”

Andrew Grantham, an economist at CIBC World Markets:

“The data seem to indicate that the U.S. economy is picking up more steam as we head towards the second half of the year, supporting our forecast that GDP growth will remain strong in Q3 and Q4 following a bounce back in Q2 from the weather impacted first quarter.”